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Rating Action:

Moody's downgrades Weibo to Baa2 on Sina privatization; outlook negative

 The document has been translated in other languages

09 Oct 2020

Hong Kong, October 09, 2020 -- Moody's Investors Service has downgraded Weibo Corporation's issuer and senior unsecured ratings to Baa2 from Baa1.

At the same time, Moody's has revised the outlook on the ratings to negative from stable.

On 28 September, Sina Corporation announced in its SEC filings that it has entered into definitive agreement to be privatized by New Wave Holdings Limited, a company controlled by its chairman and CEO Mr. Charles Chao. The transaction, which values Sina at $2.59 billion, will be majority funded by debt.

The transaction requires approval from two-thirds of the company's shareholders. On September 29, Sina also announced that it had already secured 61% of shareholder votes, indicating a reasonably high likelihood that the transaction will be completed in 1Q2021.

"The downgrade reflects the more aggressive financial policy at Weibo's controlling shareholder and parent, Sina, as demonstrated by Sina's proposed debt-funded privatization," says Lina Choi, a Moody's Senior Vice President.

There are close linkages between Sina and Weibo, with Weibo accounting for the majority of its parent's assets and earnings. The substantial use of debt deviates from Moody's expectation of prudent financial management, and could impact corporate governance at both Sina and Weibo.

"The negative outlook reflects the potential further drag on Weibo from Sina's weakened credit profile if the transaction is completed, considering the parent's elevated leverage, reduced transparency, and uncertainty around its ability to deleverage in the next two years," adds Choi.

RATINGS RATIONALE

Weibo Baa2 issuer rating reflects the company's strong market position as a leading online social media platform in China (A1 stable) and its ability to attract content providers, users and advertisers. These factors allow the company to capture an increasing share of the online advertising market.

Weibo's financial profile is solid, featuring a $635 million net cash position as of 30 June 2020.

The rating also considers Weibo's strategic cooperation with Alibaba Group Holding Limited (Alibaba, A1 stable), which has helped boost revenue and cash flow, and the company's strong financial profile with an above-industry-average profit margin and steadily growing free cash flow.

Weibo's rating is constrained by China's competitive online advertising market, rising acquisition risks related to the company's efforts to gradually broaden its business scope, and regulatory risks.

Moody's has considered risks from the high concentration of ownership and voting right on Weibo's majority shareholder, Sina, which holds a 44.9% stake and 71% of voting rights.

Today's action accentuates such risks.

Sina and its controlling shareholder's planned substantial use of debt to fund the privatization demonstrates a more aggressive financial policy than our expectation.

The privatization, if completed, will increase Sina's leverage while reducing transparency, and could signal a more aggressive financial policy going forward. This is because Sina will cease to be a publicly listed company and will no longer be obligated to disclose financial data regularly.

This will also lead to a divergence in the credit quality of Sina and Weibo, with the potential for the weaker parent's financial to act as a drag on Weibo's credit metrics. This risk is reflected in the negative outlook.

Weibo is Sina's primary source of cash flow. In 2019, Weibo accounted for 82% of Sina's consolidated revenue, 86% of its reported gross profit, 82% of total debt, and 74% of total cash.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Moody's could change the ratings outlook back to stable if (1) the privatization does not proceed as planned; (2) Weibo's cash flow and cash holdings are sufficiently ring-fenced from servicing and repaying Sina's privatization debt; (3) Sina and New Wave take proactive steps to deleverage following the privatization; or (4) Weibo continues to achieve its growth targets while maintaining a strong financial profile, overcoming the execution risks associated with its business growth and intense competition.

Moody's could downgrade the rating if Weibo (1) supports Sina's liquidity, capital spending and investments, including through intercompany loans or upstreamed dividend payments; (2) fails to fend off competition while its social advertising business is substantially disrupted, weakening its revenue growth and cash flow generation for a prolonged period; (3) deviates from its prudent financial policy and grows its user base, business scope or content library at the expense of its currently strong financial profile; or (4) engages in aggressive acquisitions that strain its balance-sheet liquidity or weaken its overall risk profile.

Specifically, the issuer rating could be downgraded if debt/EBITDA fails to trend toward 3.0x, retained cash flow/debt declines on a sustained basis, or the company has a sustained and enlarging net debt position.

Adverse developments in China's regulatory regime that affect Weibo's operations or business model would also pressure the rating.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Weibo Corporation is one of the largest online social media platforms in China. The company provides services through its website "Weibo.com" and through apps, allowing users to create and share content through text, pictures and videos, and engage in social interaction.

Weibo was founded by Sina Corp., its parent, in 2009. The company listed on NASDAQ in April 2014.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entity is participating and the rated entity or its agent(s) generally provides Moody's with information for the purposes of its ratings process. Please refer to www.moodys.com for the Regulatory Disclosures for each credit rating action under the ratings tab on the issuer/entity page and for details of Moody's Policy for Designating Non-Participating Rated Entities.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.

Lina Choi
Senior Vice President
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Clement Cheuk Yiu Wong
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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